The price mechanism is a term used to refer to how changes in prices act as a signal to suppliers to allocate resources as a response to consumer demand. The way these resources are allocated in a free market where there is no government intervention, makes it seem as if were an invisible hand moving the resources around. The term "invisible hand' was first used by Adam Smiths in "The Wealth of Nations".
For example, in a certain market if we take all factors to be fixed then the price of a given good will be such as that the quantity of intended supply is equal to the quantity of intended demand. This price is called the equilibrium price, and is not affected as long as the market for the prod
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